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Can You Get a HELOC on an Investment Property?

Matthew Levy Updated: August 29, 2023 • 5 min read
investment property

Key Points:

  • A flexible financing tool turning a property into accessible funds, functioning like a credit card.
  • Investment property HELOC is similar to traditional HELOCs but backed by investment property; can be used for diverse expenses with variable interest rates.
  • HELOC requirements for investment properties have stricter criteria due to higher perceived risks; may require better credit, more equity, and rental income consideration. 

If you have an investment property but find yourself short on cash flow, you might be exploring the possibility of a Home Equity Line of Credit (HELOC) on the investment property. Below we will guide you through what a HELOC is, how it works specifically when tied to investment properties, and what pros and cons to consider. Whether it’s a rental or just your summer cottage, understanding how a HELOC on the investment property can help you with your financial planning is important.

What is a HELOC?

A HELOC is a flexible financing tool that turns your illiquid asset (your home or property) into a liquid asset by providing loaned funds. Unlike a fixed loan, a HELOC offers a revolving line of credit, like a credit card. It’s essentially a line of credit on your investment property. You draw funds as needed and only pay interest on the borrowed amount. You do not need to reinvest it into your property, as the funds can be used for any want or need you like.


How an Investment Property HELOC Works

An investment property HELOC is like a regular HELOC but uses your investment property as collateral instead of your primary home. This lets you tap into the property's equity for expenses like improvements or unexpected costs. Getting one involves an application where lenders evaluate your property's equity and your financial standing. These HELOCs usually have variable interest rates.

Repayment might start with interest-only payments, followed by full repayments, with some flexibility like lump-sum payments. However, lenders set specific terms, so understand them to avoid risks, like foreclosure. Consulting a financial expert and thorough research is crucial before committing.

HELOC Requirements for Investment Properties

As investment properties are generally less safe than primary residences for lenders, there tend to be stricter criteria for HELOCs. Lenders may need a higher credit score, more equity in the property (often 25% or more), and a favorable debt-to-income ratio for the borrower. Rental income, if there is any, may be considered in the qualification process. 

The enhanced stringency reflects the perceived higher risk for lenders associated with investment properties. It is advisable to contact potential lenders ahead of time to understand their specific criteria, to ensure that both yourself and the property qualify. 

HELOC on a Rental Property: Pros and Cons

A HELOC on a rental property comes with several pros and cons:


  • Flexibility: A HELOC offers a flexible line of credit you can use as needed, convenient for property improvements or other investments. 
  • Potential Tax Benefits: Depending on your situation, interest paid on a HELOC might be tax-deductible. Consult with a tax professional to see if this applies to your situation. 
  • Equity Utilization: A HELOC allows you to leverage the equity in your rental property for financial opportunities without selling the property outright. 


  • Variable Interest Rates: HELOCs usually have variable interest rates, which can lead to increased payments and interest costs if rates rise. 
  • Access Difficulties: Obtaining a HELOC for a rental property can be more challenging than for a primary residence. 
  • Risk of Foreclosure: Defaulting on your payments or your loan outright could result in losing your rental property. 
  • Additional Fees: Upfront costs and ongoing fees may be associated with opening a HELOC.

Ensure you read all the fine print and terms associated with any loan or HELOC you open before signing the documents, and consult a financial expert if needed. 

The Risks of HELOC on Rental Properties

Using a HELOC on rental properties carries specific risks. Unlike traditional mortgages, HELOCs usually have variable interest rates, as mentioned above, meaning that when interest rates rise, like they have this year, your payments also increase. This can strain your cash flow, especially if you’re counting on the rental income to cover costs. 

Furthermore, if the property value decreases, you could owe more than the property is worth, leading to an “underwater” loan. In a worst-case scenario, failure to meet the repayment obligations could result in the foreclosure of your rental property. 

Is Using a HELOC for an Investment Property Tax Deductible?

The tax implications of using a HELOC for an investment property can be complex and often depend on how the funds are used. Generally, the interest may be tax deductible if the HELOC is used exclusively to buy, build, or substantially improve the rental property. 

However, if the funds from the HELOC are used for personal expenses, unrelated investments, or something like consolidating credit card debt, the interest may not be tax deductible. Tax laws and regulations can change and may vary depending on your situation and jurisdiction. The Tax Cuts and Jobs Act of 2017 significantly changed the deductibility of home equity interest, so consulting with a tax professional or financial advisor is important to understand your unique situation. 

The potential tax benefits and limitations of a HELOC on an investment property can help and harm your financial planning. Seek professional advice to ensure compliance with current tax laws and keep all information up-to-date. 

Alternatives to a HELOC on an Investment Property

While a HELOC is more flexible and can be useful in leveraging the equity in an investment property, there are other options. Some are listed below:

  • Cash-Out Refinance: This allows you to replace your existing mortgage with a new one for a higher amount and cash out the difference. 
  • Personal Loans: Depending on your credit, a personal loan could provide the funds needed without leveraging your property equity. 
  • Credit Cards: For smaller expenses, credit cards could suffice. It is not advisable to leave a balance on a credit card where possible, though, as interest rates are typically extremely high. 

All of these alternatives have their own pros and cons, so consider each carefully to determine the best option for your investment needs. 


Securing a HELOC on an investment property can be a great strategic financial move, offering flexibility and potential tax advantages. Ensure you know the requirements, risks, and alternatives before entering into a contract and borrowing funds. Consult with financial professionals to get the best options for your specific needs and investment goals to secure your financial future.



How much equity do I need for HELOC?

Typically equity requirements are around 15% to 20% in the property for a HELOC. Lenders’ requirements do vary, though.

Are HELOCs allowed on investment property?

Yes, some lenders do offer this. Terms and conditions may differ from primary residences, so read the fine print.

Is it a good idea to use HELOC as a down payment?

Using a HELOC as a down payment can be a strategy for some investors, but it is the same as taking out any loan to invest. This will increase your leverage, magnifying your winnings and losses. Assess the investment’s potential return and risk first; generally, consulting with a financial expert is a good idea before proceeding.

Can I use my HELOC for anything?

Yes, you can use a HELOC for any purpose, including home improvements, education expenses, or other investments or needs. How you use it does affect the interest’s tax deductibility, so if you’re looking for that, make sure you are using the funds appropriately. Consult with a tax professional if you have questions.

Written by Matthew Levy

Matthew is a freelance financial copywriter with 14+ years in financial services. He holds a Bachelor of Science degree in Economics with business and finance options and is a CFA Charterholder. He is from Vancouver, Canada, but writes from all over the world.